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Disentangling the Effects of Large Minimum Wage and VAT Changes on Prices: Evidence from Mexico

Calderón Cerbón Mariana, Cortés Espada Josué Fernando, Jorge Pérez Pérez () and Salcedo Alejandrina

No 2022-13, Working Papers from Banco de México

Abstract: In January 2019, the authorities increased the minimum wage and decreased the value-added tax (VAT) in an effort to boost activity on the northern Mexican border. In this paper we estimate the effects of both policies on prices. We find that the upward pressures on prices due to the minimum wage hike were more than offset by the downward pressures associated with the VAT. In the absence of the VAT reduction policy, average prices in the northern Mexican border would have been higher. We estimate that the effects of the minimum wage on prices tended to be smaller for goods or services produced with a larger share of informal labor.

Keywords: Minimum wage; Value-Added Tax; Prices (search for similar items in EconPapers)
JEL-codes: H20 J38 J46 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-iue, nep-lma and nep-pbe
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Journal Article: Disentangling the Effects of Large Minimum Wage and VAT Changes on Prices: Evidence from Mexico (2023) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bdm:wpaper:2022-13

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